Southwest CEO maps out a recovery after holiday meltdown

Southwest CEO Bob Jordan’s message, after a holiday meltdown derailed the travel plans of millions, is clear: “I can’t say it enough. We messed up.”

Jordan’s focus now, he told CNBC in an interview, is ensuring a similar crisis never happens again. The airline has hired consulting firm Oliver Wyman to review its processes, interview staff and union members, lay out what went wrong, and determine how to avoid it in the future. The low-cost airline is working with General Electric to improve the capabilities of software that helps Southwest work out crew reassignments. And the airline’s board has created an operations review committee to help managers work through such events.

The event was jarring for many travelers used to Southwest customer service, which includes policies like free checked bags, a rarity for domestic U.S. travel. Lawmakers and Transportation Secretary Pete Buttigieg said they want to look further into the disruptions.

The Transportation Department is in the early phase of an investigation into the airline’s holiday turmoil and is also “probing whether Southwest executives engaged in unrealistic scheduling of flights which under federal law is considered an unfair and deceptive practice,” a spokesperson said Wednesday.

Less than a year into the airline’s top job, in the aftermath of travel chaos he hadn’t seen in his more than three decades at Southwest, Jordan is now tasked with making things right with passengers and employees.

“We took good will out of the bank. We know that,” Jordan told CNBC. “We have work to do to repair trust, but our customers are very loyal and we’re seeing that loyalty.”

Southwest said it offered premium pay to flight attendants and $45 million in “gratitude pay” to pilots because of the meltdown. Both groups have warned about inadequate technology and scheduling for years.

The carrier has also handed out 25,000 Rapid Rewards points each, which the company estimates at a roughly $300 value, to about 2 million people who had flights booked over the chaotic holiday period, Jordan said.

He said that a recent fare sale was successful and that many customers are redeeming the frequently flyer points for Southwest flights.

Southwest said Thursday the chaos amounted to an $800-million hit to its pretax results and a rare quarterly loss.

A Southwest spokeswoman told CNBC on Wednesday that the airline’s planned resumption of a quarterly dividend will go on as planned on Jan. 31

Southwest said it canceled about 16,700 flights between Dec. 21 through Dec. 31, a tally that swelled after it failed to recover from severe winter weather that crippled travel across the country, stabilizing days later. Airline executives had expected it to be the busiest travel period since the Covid-19 pandemic began.

Hydraulic fluid turned so thick in the brutal cold that jet bridges couldn’t move. Snow and high winds suspended operations at airports across the country. Airplane engines iced over. 

Most airlines had largely recovered from the bad weather by Christmas Day, but Southwest’s problems worsened when crews had to call in to get new assignments or hotel rooms, causing a backup.

The carrier’s aircraft and crews were left out of place and at the mercy of crew scheduling systems that were designed to handle current or future flight disruptions, not a pileup of flight changes in the past.

“We needed a larger answer to reset the network,” Jordan said. “That was basically pulling the schedule down.”

Southwest flew around just a third of its planned schedule for several days after Christmas to get crews and planes where they needed to go.

“The GE Digital tool that is integrated into Southwest’s systems performed as designed throughout the event, and we are working with them to define new functionality as they improve their crew rescheduling capability,” a GE spokesman said Tuesday.

Still, scheduling chaos after bad weather isn’t new for the airline industry. JetBlue‘s meltdown in February 2007 cost CEO David Neeleman, JetBlue’s founder, his job. (He has since started a new carrier in the U.S., called Breeze Airways.)

Southwest itself had a smaller-scale cascade of flight disruptions in October 2021 that cost it around $75 million. Months earlier, Spirit Airlines took a $50 million hit from mass disruptions.

“Every airline has its fall, and from that they rise with new perspectives,” said Samuel Engel, a senior vice president at consulting firm ICF. “The airline reaches a certain point of complexity and has a disruption event of such scale that it causes them to look deep inside.”

Both Spirit and Southwest operate so-called point-to-point networks that don’t rely on hubs, like larger airlines, and instead have planes hopscotching around the country. The model generally works and helps keep costs down, but it can compound disruptions during extreme events.

Jordan defended the model and said the network is usually easier to recover because travelers don’t have to rely on connections to get to their destinations.

“The issue here wasn’t the network, the issue was how many places got hit with weather and how many cancellations that drove, basically continuously,” he said.

Southwest, United, Delta and American control more than three-quarters of the U.S. market.

“Customers just consistently choose their flights based on fare and schedule,” he said. “As they’re going through a disrupted trip they’ll say ‘never again’ — and then they do.”

Mark Ahasic, an aviation consultant who worked with JetBlue during the 2007 meltdown, said the airline’s reputation “took a hit, but it didn’t destroy the brand.”

Southwest has to solve the issues that caused the holiday trouble and make amends with customers, but many travelers — particularly those at airports where Southwest has a strong foothold — typically have few airline choices, Ahasic said.

Southwest has nearly finished processing customer refunds and is working through the more complex task of reimbursements, which Jordan said includes everything from meals to dog-sitting fees. Some travelers who were left to pay high fares for scarce seats on other airlines are still waiting for their money back.

Codi Smith, a 28-year-old artist who lives in Los Angeles, paid $578.60 for a Delta flight back to LA from his mother’s house in St. Louis after Southwest canceled part of his return trip after Christmas. Southwest offered Smith an alternative flight on New Year’s Eve, but Smith said he has multiple sclerosis and needed to get back to Los Angeles sooner to get his medication.

“I just didn’t know what could happen,” Smith said.

Southwest refunded Smith for the portion of his trip on its airline, but as of last week hadn’t refunded him what he spent on the Delta flight. He said Southwest sent him four inflight drink coupons.

“Why would I use drink tickets when you owe me $600?” he said. “I really just want this money back.”

Cameron Brainard, a voiceover artist and country music radio host, said he paid more than $1,000 to get back to New York from Nashville, Tennessee, including a rental car from Louisville, Kentucky. Southwest offered him $540.02, noting in a Jan. 19 email, which Brainard shared with CNBC, that he hasn’t claimed the reimbursement yet.

“Make sure to claim this payment before it expires” in July, the email reads. “This payment constitutes full and final settlement of your claim with Southwest Airlines.”

Brainard said he flies Southwest frequently and isn’t planning to quit the airline after his cancellation, though he would “second guess it” depending on how his reimbursement pans out.

“I hope it makes them a better airline,” he said.